Wednesday, November 9, 2016

Day 1 of a Dangerous New Era

I am not up at 4 a.m. just because yesterday’s election signals a dangerous new era in the United States — but since I am up, allow me to run through a few quick observations about what happened and the situation we find ourselves in.

Clinton was a candidate first and foremost. Hillary Clinton came across as a woman who had spent her whole life preparing to be a candidate for U.S. president. It was not as convincing to voters as it might have been had she put the same effort into preparing to be a president.

Obama’s party-building efforts failed — in the short run. I am not sure any U.S. president ever made party-building a higher priority than Obama did, but the result of his effort has been to take the Democratic Party from a position of controlling the presidency and both houses of Congress to falling just short in all three areas.

Trump is as far from having a mandate as U.S. politics allows. When I checked a few hours ago, Trump’s share of the popular vote was estimated to be slightly over 45 percent. If accurate, that would mean his share of the vote was less than that of the losing presidential candidate in the four previous elections. It would also be less than that of Clinton, though not by much. At the same time, there are other special factors that suggest a lack of a mandate. Trump did not spell out any coherent, credible policy positions. Some of the people voting for Trump were Republican voters who hoped that a Trump victory, and the assumed incompetent administration that would follow, would lead to a quick collapse the Republican Party. Trump got a late boost from an unorthodox and almost certainly illegal intervention in the election by the FBI. Looking back, it is safe to say that Trump could not have been elected without the benefit of these last two factors.

This could be the last hurrah for the Republican Party. Did you see the millennial-voter version of the electoral map? If you only counted votes of voters under 40, Trump’s share of the vote would have been about 5 percent and he would have won about 5 states. The age of the average Republican voter is around 63. Four years from now these same voters would be 67 years old except that some of them will have died of the diseases of old age before then. The advanced age of Republican voters costs the party at least 2 points per 4 years. When you are declining from a base around 45 percent, that is fairly grim.

American democracy is broken. More voters voted for Democrats for House, Senate, and President, yet the system delivered control in each case to Republicans.

There is a risk of a stock market crash. Investors shocked by events often need to sell a few specific stocks and bonds immediately regardless of loss. If enough companies are affected and the price moves are large enough, this can lead to investors generally feeling that they need to sell quickly.

Businesses are feeling uncertain. There was a sudden pause in hiring when the FBI intervened in the election a week ago. Hiring will continue to be slow until businesses feel comfortable that they know what the new regime will be. Given Trump’s reticence and incoherence on policy matters, it might be a couple of years before that happens. One interpretation of Trump’s trade policies would be expected to reduce U.S. economic output by 10 percent, so businesses have a reason to be cautious about new investments of any kind.

Austerity is back. Households that were starting to spend more freely again after nine years of being financially squeezed will feel some of the same uncertainty that is affecting investors, businesses, and the job market, and will go back to the very tight style of spending that so many of us learned in 2007. This could lead to sharply lower economic growth all by itself.